Financial statements are a presentation of the financial position of your company at a particular point in time – most often this is your year-end. They are often prepared for external stakeholders in your business – your unofficial partners – bankers, other creditors, tax authorities, or potential investors. You seldom want to give them full access to your books and records but are required to give enough information so that a sophisticated investor or reader of your financials will be able to make informed decisions based upon the information. In order to provide financials that are balanced between not giving away too much proprietary information and supplying the users with what they need, the industry follows Generally Accepted Accounting Principles (GAAP) in the preparation of external financial statements.
Your users will also dictate the level of assurance that is required with your financial statements. There are primarily three levels of assurance:
Audited Financials:
Encompasses a detailed examination of your books and records in order to express an opinion on whether the financial statements were prepared in accordance with GAAP and are reasonable and free of material misstatements (something that would affect a decision of a reasonable user – positive assurance).
Reviewed Financials:
Encompasses a review of your books and records in order to express an opinion on whether the financial statements were prepared in accordance with GAAP and are plausible and that nothing has been noted that would indicate that the financial statements are not free of material misstatements (negative assurance).
Notice to Reader Financials:
No assurance is given with respect to the financials being free from any misstatements. The information is compiled in a format that is appropriate for the purpose and users intended (bank or tax authorities). Financial statements often include a Balance Sheet, Income Statement, Statement of Retained Earnings and a Statement of Cash Flows. More often than not they also include Notes to the Financial Statements. These notes are usually required in accordance with GAAP, and they often will present qualitative as well as quantitative date in order for a reasonable user to make an informed decision (for example, the length of a lease commitment).
Which level of assurance do you need? Often the external user – your banker or tax authorities, dictates it. We can help you review your specific needs and provide you with the service you require. Call us today for your free, no obligation consultation.
